Short Term Rentals with Partners- How do you structure?

Question

I have a few friends and fellow investors that are interested in partnering on short term rental properties, but I don't know how to structure the deal. I'm hoping to get some sound advice on how to structure these deals to protect each partner's ROI and the relationship.

In particular, I'd like to know how to structure a deal where the other partner is fronting the down payment.

Thanks,

Corbin Loveless

In particular, I'd like to know how to structure a deal where the other partner is fronting the down payment.

Thanks,

Corbin Loveless

Paul Sandhu · Answer

Here's my partnering.  I find the renters and do the maintenance.  A lady does the cleaning for free between occupancies.  I get to sleep with her.

Avery Carl · Answer

The most popular method is probably the capital partner + sweat equity partner model. Like @Justin Anderson said, set up the LLC with both of you. One provides the capital and the other provides the management, and you split profits and equity however you determine.

John Underwood · Answer

This make life much more difficult then you are only getting a share of rhe profit.

Try and buy your own properties so you build income and wealth faster.

Avery Carl · Answer

Title would be in LLC name or you'd need to be quit claimed onto the deed at a specified point as @Justin Anderson said!

Justin Anderson · Answer

In the situation I was referring to, the partner bringing the money has title in his name alone.  The other partner buys in over time through sweat equity (and cash, as available) until he reaches 50/50.  The partnership agreement outlines how buy in occurs, roles and responsibilites, etc.

Justin Anderson · Answer

You can just do an LLC with 2 members where 1 has the 'capital contribution' (and presumably the note in his name).  You just need to spell out who gets what from whom, what the equity split is, roles and responsibilities, decision making, buyout options, capital calls, etc.Any lawyer will be able to write this up for you so everyone is covered.  Just agree in principle before you go to the lawyer so you hit him with a handful of bullets to draw up the paperwork.  Otherwise you'll end up paying a lot more money than you need to as he pulls those bullets out of you.

EDIT:  To more directly answer your question.  It's really up to you how it's structured and there isn't necessarily a right way.  I've seen one where one partner gets 100% of the profits while the other partner 'buys in' with a management fee that 'buys in' over time.  Or another where partner number 2 buys in right away with cash after closing that couldn't otherwise be touched.  It's really what works best for you all.

Brian G. · Answer

@Justin Anderson so I can be added to title anytime if we agreed that I retained say 30% equity stake in the deal? ie I don’t have to be a 50% equity stake holder to be added to title right? Thanks!

Justin Anderson · Answer

It's what ever you two agree is fair.  There isn't a right and wrong here.  I'd argue that your equity is equal to whatever contribution you've made per your agreement.  So in your example, you'd own 10% after year one, 20% after year two, etc.

Brian G. · Answer

@Justin Anderson @Avery Carl so I would not be added on title until/unless I’m a 50% equity owner? So if I retained say 10% equity each year so that after 5 years in I’m a 50% equity partner *then I would be added* on title or can that happen *prior to a 50% equity stake* in the deal provided the partnership agreement spells it out?

Justin Anderson · Answer

Yeah, you'll have a really hard time buying in an LLC if you want to try that way, especially if it is a company with no history.  Transferring title to the LLC later can happen in a month or three after servicing the note has transferred.   Technically lenders don't like that and can call the note, but that basically never happens as long as the bill is getting paid.  You can definitely search through here to read up on that as there are entire threads about it.

Your partnership agreement would outline what share of the house you possess but the money partner just keeps it in his name until you're ready to quit claim it over.

Short Term Rentals with Partners- How do you structure?

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